The Millennial Perspective

Possibly the millennials—those born between 1982 and 1994—are jealous of all the attention baby boomers have been getting since January 1, 2011, when the oldest members of the baby boom generation turned sixty-five. On that day—and for every day for the next nineteen years—ten thousand baby boomers will reach age sixty-five.

Trust Issues with Financial Advisors

Surveys show that millennials don’t trust financial advisors. However, surveys can be damaging, especially if their conclusions are questionable. But most consumers believe survey results because they’re easy to remember. And in a sound-bite society where content is king and most young people are short on patience and in a frenetic rush to succeed, many consumers opt not to read. Why bother when they can absorb bite-size, real-time content 24/7 on their iPhones? The average consumer hardly questions survey standards and methods, such as the number of people surveyed and whether they’re a representative sample.

Discrimination in the Investment Industry

A survey conducted by research firm Corporate Insight found that that the investment industry is discriminating against millennials. Based on a survey of five hundred advisors, only 30 percent of financial advisors are actively looking for clients under age forty. It’s widely (but incorrectly) believed that advisors prefer older clients because they have money, and thus are not interested in millennials. It’s time to right the scales and bridge the millennial/financial advisor misinformation gap.

Understanding Millennial Needs

According to the U.S. Census bureau, Millennials are the largest generational group in recent history at ninety-two million, larger than the boomers at seventy-seven million. They have less money to spend, according to the bureau of labor statistics, due to smaller incomes. They have twice the debt—in the form of student loan debt—of those from ten years ago, according to the Federal Reserve. As a result, commitments like marriage and home buying are being delayed. With the unique characteristics of this group, their need for financial advice is considerable, but needs to be differently formatted than previous generations. The supply of those serving Millennials is adapting to this new type of consumer/investor.

Bridging the Information Gap

Millennials have a harder time with finding advisors because of the popular notion that they need a portfolio of securities to be managed, and therefore, simply do not look for an advisor. Many in this age group simply are not aware of the other services advisors offer, so they do not conduct a search for someone that can help.

On a Better Path

Angela’s Journey

Angela Poupart, the daughter of missionaries, is thirty-one and grew up in the Midwest. Due to good parenting, Angela was unaware she came from a lower income household. Early on, she was taught the perspective that climbing the corporate ladder would grant her success, but that never appealed to her, and her overall quest wasn’t centered around becoming a millionaire. She is a creative person who likes to understand the functionalities of the things around her, which led her to becoming more inquisitive about her finances and how they were being managed in her life.

She went to community college to save money, then transferred and graduated from Ohio State University with a degree in New Media and Communication Technology. She is fascinated with the topic of human computer interaction and understanding how people interact with product interfaces. Upon graduating, she accumulated thirty thousand dollars in school debt, something she is not comfortable with as her parents taught her that debt can be very problematic. Angela wants to accomplish several things in her personal finance journey. She wants to invest for retirement, but also fund her passions. She feels that there is a narrative that investing is only for retirement, but not for being a tool to pursue your dreams, which for her may include starting a business one day. Her frustrations stem from not knowing where to start looking for the right resources to help her and feeling unsure of which steps to take.

Angela went to someone who has been in the financial services industry for over thirty years and asked this person what she should do. The reply? “Until you have twenty-five thousand dollars to invest, there is not much you can do.” This same person also suggested reading the Wall Street Journal every day. She did read the WSJ for a while, but was not able to connect to it, and found it was not answering her questions. Angela told me this was not the first time someone gave her advice that was not helpful. This advice was pretty bad for her; in fact, this is simply not correct for anyone in her situation.

During our interview, I told her there were thousands of advisors who catered specifically to Gen X and Y consumers. I followed up by telling her about the XY Planning Network, a company that teaches advisors how to set up a financial planning practice to cater to this demographic and has a directory of members to select from. There are over six hundred advisors that belong to this network. Angela can get an affordable financial planner who will tell her all the things she should be thinking about financially. Angela is among the many who do not know what they don’t know. If you’re in this situation, getting a financial planner is the best thing you can do for yourself.

Angela has since moved to New York, paid down a good amount of her debt, and is actively evaluating different planners. Angela had a great view on why she plans to get a financial planner. “We all put at least forty hours of work into our job and spend an incredible amount of effort into doing our job well. The output of that work is money, yet so many people don’t put any effort into what to do with the money afterwards. The effort should be continuous throughout the whole cycle, but it’s not. It makes no sense.”

A Long-Term Relationship

Barry (not his real name) is single, thirty-seven, and a cyber security expert who has an MBA. Barry describes himself as a methodical person who does not get rattled easily. Barry has had the same advisor since right after graduating college, and in fact he uses the advisor his parents have been using. Mark (not his real name) has been working with Barry’s parents for many years, coming to the house to discuss various issues, so Barry has known him for a long time. Mark started his career as an insurance agent, then later got his series 7 license and now only gives investment advice and securities brokerage services, no longer selling insurance. When Barry was about to graduate from college, Mark invited him to his office to give him tips on his résumé and job hunting. Barry was very appreciative, and found it refreshing that Mark took an interest in Barry’s career and future.

In Barry’s first job, he participated in his employer’s 401(k), then started getting guidance from Mark. Later, he opened an IRA and a Roth IRA with Mark and contributed as much as he could each year. During the 2008 recession, Mark called Barry very frequently to see how Barry was doing, as so many people were rattled and making emotional decisions. Barry had to tell Mark to call less often; he was fine, and understood markets go down. He was confident in his investments.

Over the years, Barry has met with other advisors, but none have given him the comfort level Mark has. Mark understands what level of detail and information Barry needs, is always prepared, and knows when to persist on a certain topic and when not to. Barry’s primary goal is to fund retirement, and possibly get out of the corporate life and start his own business in the future, in order to control his own earnings destiny. Because he started early and stayed the course, he is on pace—and in fact, ahead—of most of his peers.

An Entire Organization for Millennials

Michael Kitces is the co-founder of XY Planning Network, an organization with over six hundred advisor-members who provide financial planning services to Generation X and Y consumers. Michael has been in the industry eighteen years and is very well known in the financial advice and financial planning communities. He is also a partner and Director of Wealth Management of Pinnacle Advisory Group, as well as founder of his Kitces.com and Nerd’s Eye Blog, and finally, co-founder of AdvicePay—an application that makes it easier for advisors to charge monthly retainer or other financial planning fees while safely complying with SEC rules. He holds two master’s degrees and many designations, including the CFP, CLU, and ChFC.

XY Planning Network (XYPN) was founded in 2014 in response to an observation by Michael and co-founder Alan Moore that there was not enough focus on helping consumers who needed and wanted financial advice, but who had not yet accumulated an investment portfolio to give an advisor to manage in exchange for that advice. Alan had in fact already been working with clients in their twenties and thirties when he and Michael decided to create a business around the notion that there are many younger consumers who need advice that is unrelated to managing an investment portfolio. XYPN is an organization that helps advisors set up and maintain a planning business for younger consumers that is fee-only and charges a reasonable monthly fee for financial planning advice. The network has many support programs for the advisor members, including bundled technology to run a fee-for-service planning firm, membership in a trade association, discounts on additional software licensing, and an advisor support system through access to a community of like-minded advisors. It is rapidly growing.

For a young consumer, selecting an advisor listed on the XY Planning Network website will provide access to a licensed CFP professional to answer myriad questions such as how to budget, how to manage cash flow, how to take advantage of employment benefits, how to save for a house down payment, and more. During my interview with Michael, he made the statement that many people refer to their attorney for legal advice and refer to their CPA for tax advice, so why not refer to a retained planner for anything and everything relating to money and wealth?

It is not difficult to think of topics to discuss with your personal financial planner as a younger person. Do I need life insurance? What are the best practices if I get married and need to merge household finances with my spouse? How do I deal with my student debt? Consumers should expect to pay between seventy and two hundred dollars per month to have an XYPN planner on retainer. During our discussion, Michael had a unique way of putting this recurring expense into perspective. “Have you made money mistakes in your life that amount to two percent or more of your annual income? For most people, the answer is yes. Therefore, paying between one to two percent of your annual income for a licensed CFP professional to rely upon to prevent you from making those mistakes going forward with the other 98 percent of your income is an excellent investment.”

Millennial Advisors Make Themselves Known

The good news for investors in the Gen Y and Gen X age brackets is that advisors of that age are very comfortable making themselves known on social media platforms like Facebook, LinkedIn, Twitter, and others. They speak publicly with frequency, they write and blog, they are very social, and readily share their marketing best practices with others. There are even conferences about financial topics not unlike Comic-Con; one is called Fincon, where younger advisors speak, exhibit, and meet other financial gurus who are media savvy.

Not Your Father’s Financial Planner

Sophia Bera is the founder of Gen Y Planning focusing on Millennials. Sophia is a CFP and understands what it’s like to be a twenty-something figuring out how to prioritize all of life’s financial decisions, from home buying to saving to paying off debt. As a virtual planner, she makes herself available at night and on the weekends to accommodate the busy lives of young professionals. She has appeared on TV, been interviewed, created a blog, and written an eBook titled What You Should Have Learned About Money But Never Did.

She makes the point that she is relatable to her clients, making them feel like they are speaking with an old friend via email, phone, or Skype. Sophia writes that she helps people use their money to create their ideal lives. She, like other advisors catering to a younger age bracket, charges a monthly retainer fee for planning services. A common point that has been made is that this younger generation pays many bills monthly, such as cable TV, rent, insurance, gym membership, and others; a financial planner or coach cost is acceptable as a monthly expense as well. A frequent public speaker, Sophia has addressed advisor audiences, consumer audiences, and employee audiences at firms like Google.

Addressing a Huge Disconnect

Workable Wealth, LLC is a financial planning firm catering to those in their twenties to forties. Mary Beth Storjohann is a CFP who has been making financial advice approachable and fun to professional and entrepreneurial women, young couples and families, and military families, for the last thirteen years. She makes the point that the Gen X and Gen Y market has not been served as well as it could be by the educational system nor the broader planning and financial sector. Mary Beth is part of a growing group of advisors that charge some manner of fee for planning services, normally a monthly retainer.

Mary Beth stands out, as she has been embraced by the media and has been interviewed by NBC, CNBC, The Wall Street Journal, Forbes, Women’s Health and many other publications. As a military spouse, she has great affinity for those that serve and their families. As a young mother and entrepreneur, she has empathy for the financial and literal distractions that can make it difficult to master your financial life.

From Google to Planner-Robo

Chris Hutchins and Chris Doyle came to serve the financial advice needs of Millennials from different places, but arrived at a similar conclusion. Hutchins spent time at Google Ventures, and Doyle at Barclays working with mortgage backed securities. In 2015, they founded Grove in San Francisco to make financial advice and planning affordable to everyone.

Grove is different from the thousands of millennial-aged advisors serving millennials. They appear to be seeing a very large business for themselves in the future as they have a sizable staff and have created their own investment algorithm that goes hand in hand with staff CFPs. In fact, the process starts with a CFP-rendered financial plan. They are clearly targeting the competition with a low flat annual fee, plus a low asset under management fee for their own robo.

An impetus to start this business was an observation that Doyle made: even his sophisticated associates were unsure of how to address the various and complicated questions they had surrounding finances.